It is important to note here that VPPa need market liquidity – where the project is allowed to sell its energy directly on the grid at the prevailing wholesale price. This is generally only possible in organised markets such as a regional transport organisation (RTO) or an independent network manager (ISO) acting as third-party operators independent of the transport network. Since the VPPA economy is based on the difference between the fluctuating market price and the VPPA price, it is important to have the transparency of an RTO/ISO market. Step 3: After the construction period, the developer begins to sell the energy produced in the electricity market. Now, remember, the buyer of the company has agreed to pay a fixed price for renewable energy; The developer (including the seller) is subject to variable market prices. Although aggregation is great in theory, execution is complicated. To sell to multiple buyers, a developer must knock on many doors, convince several buyers to work with them and find enough buyers to buy the perfect amount of energy – not too much, not too little. On the other hand, before they can work together to buy electricity from a project, companies must first find themselves, coordinate their vast list of internal stakeholders and navigate together through sensitive timing issues and contract negotiations to get an agreement over the finish line. Let`s break down the operation of virtual power chords into four steps.
Start finishing – which makes it very easy to understand. However, the largest (and most common) promise of value for ACME is that ACME Co. may, because of the VPPA, benefit from credits for the supply of renewable energy to the grid. This is a way that companies can go to ”100% renewable energy” without ever providing renewable energy sources on the ground or directly sourced energy from renewable energy sources. It is important that, in this scenario, only the company that owns and ”removes” the renewable energy allowances can credit the CO2 reductions. Even if someone else does purchase the electricity generated from this special wind or solar facility, ACME Co. can claim CO2 reduction by removing the CERs. In addition, virtual power purchase contracts, like conventional PPAs, build credits for renewable energy for businesses. You will receive a Renewable Energy Certificate (REC) from the developer for every megawatt hour of electricity generated.
There are two players who come to the table in a VPPA: the business buyer and the developer of the renewable energy project. Business buyers want to achieve their renewable energy goals by providing bundled RECs and new clean production projects (so-called ”additionalities”). Developers try to sell their energy at a price that allows them to achieve their internal performance. If the developer can find a buyer who will guarantee that he will receive this award for 10 years, he can get the financing he needs to build the project. Now, project developers are cutting out a project and selling the parts to several buyers. It is called aggregation — and it has the potential to transform the industry. When aggregating, a developer doesn`t need to find a utility or a large company first. Many buyers can buy together most of the energy that the project will produce, so that the developer can get financing.
By cutting the project, buyers who do not need a very large amount of energy can now participate in PPAs. For more information on aggregation, see ”What is energy aggregation? – a primer. Unlike a physical power purchase contract, a virtual AAE is a simple monetary contract. This is why it is also known as the Financial Power Purchase Agreement. In the case of a virtual AAE, the energy does not physically pass from the project to the buyer.